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Post-employment benefits

Date recorded:

The Board continued its discussion of the proposals in the exposure draft Defined Benefit Plans (the ED). In response to the main issues raised by respondents (previously discussed at the October meetings), the staff developed recommendations for specific disclosure, presentation, and classification items. The staff presented papers (agenda reference 11A — 11H) which provided an overview of the responses to the ED proposals with staff analysis and staff recommendations on moving forward with or revising the original ED proposals. This meeting focused on 1) presentation, 2) disclosure, and 3) classification.

Cover note (Agenda Paper 11A)

The staff began with a discussion of paper 11A by providing a high level overview of the topics to be discussed at the meeting and a summary of the information included in the other agenda papers. The staff noted that the IASB was still on track to finalise the amendments to IAS 19 by Q1 2011. A summary of the comments from respondents and the staff's recommendation are included in each of the agenda papers.

Disclosure: Approach and objectives (Agenda Paper 11E)

The staff briefly explained the disclosure topics to be discussed and informed the Board that these topics are included in agenda items 11E through 11G. The staff explained the Board's approach in developing the proposed objectives and required disclosures in the ED (included in 11E) and moved on to discuss themes in comments received from respondents to the proposal, which are included in the agenda paper.

The staff noted that some respondents were concerned about excessive disclosure, the potential for disclosures to become boilerplate, and detailed disclosure requirements rather than a more principles-based approach. The staff noted that some respondents sought more guidance on materiality and referenced the following proposed disclosure guidance included in paragraph 70 of the Revenue from Contracts with Customers ED:

70. 
An entity shall consider the level of detail necessary to satisfy the disclosure requirements and how much emphasis to place on each of the various requirements. An entity shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics.

The staff noted that having a requirement such as this might assist entities in meeting the disclosure objectives without obscuring relevant information with excessive detail. A discussion by the Board ensued. A Board member noted that a list of required items sometimes results in too much disclosure. However, a split between required and encouraged disclosures also presents issues and noted that based on an IFRIC project preparers generally don't include encouraged disclosures.

The Board then unanimously agreed with the staff proposal to confirm the disclosure objectives proposed in the ED, with consideration given to the comment on including a similar discussion to that included in paragraph 70 of the revenue ED.

Disclosure: New disclosures (Agenda Paper 11F)

The staff discussed the information included in agenda paper 11F, starting with an overview of the objectives. The staff member highlighted certain responses from respondents that they considered in developing their recommendations and then provided and overview of their recommendation to the Board.

Question 1:

A Board member expressed concern with part (c) of the staff's proposal, which would eliminate the requirement to disclose the effect of a change to each significant actuarial assumption at the beginning of the reporting period that would have affected current service cost. She noted that this provides information to enable users to understand the variability (measurement uncertainty) of current period service cost. The staff responded that the objective of this disclosure in ED was to provide disclosure about risk, and that is why they proposed to remove this requirement from the proposed disclosures. Another Board member questioned whether there would be operational issues with entities trying to evaluate risks that are unusual and specific to the entity as included in part (a). He noted that the objective is proper, but may result in inconsistency in practice.

The Board moved to vote on the proposals in Question 1, and a majority agreed.

Question 2:

A member of the Board raised concerns about the staff's proposal to eliminate the disclosure of the process of developing demographic assumptions. He noted that disclosures on demographic assumptions are very sensitive in certain jurisdictions and many would be interested in how such assumptions are derived. Another Board member noted that disclosure of where certain mortality assumptions come from (i.e., which mortality tables) is an important disclosure, as some entities may use outdated tables in developing their assumptions. It was also noted that investors usually compare demographic assumptions to an entity's industry peers or those in the same jurisdiction. The Board members also noted that IAS 19 includes a principle that assumptions significant to the defined benefit obligation (DBO) need to be "relevant and up to date."

The Board voted unanimously to approve the proposal in Question 2 to remove the description of the process used to determine demographic assumptions.

Question 3:

The Board moved on to discuss alternative measures of the DBO. Support for disaggregation was expressed by some Board members, but concern was expressed that that it may not be clear to entities how to apply the staff's proposal. It was concluded that this proposal should be discussed by the advisory group and potentially field tested.

Question 4:

The Board unanimously voted to accept the staff's recommendations to confirm the proposal in the ED to disclose asset-liability matching strategies used by the plan.

Question 5:

With minimal discussion, the Board approved the staff's recommendation in Question 5(a) to include a narrative description of the funding policy or arrangement for the plan.

The Board had extensive discussion regarding the proposed disclosures for information about the amount, timing, and uncertainty of future cash flows. Discussion focused on use of forecast information to project the next five years of benefit payments and whether there would be operational issues related to this provision. The staff and some Board members noted that the disclosure would utilise information that is used to measure the obligation. The Board also discussed whether this disclosure was important to both funded and unfunded plans, with some advancing a view that it was not as relevant to funded plans.

The majority of the Board approved the staff's proposal to disclose the expected contribution in the next year. The Board expressed general support for the disclosure of the next 5 years of benefits payments but concluded that this be discussed at the Employee Benefit Plan Working Group (EBWG) and potentially field tested.

Disclosure: Other disclosures (Agenda Paper 11G)

The staff briefly explained the topics for discussion for this agenda item.

They explained that the staff's proposed disclosure of the duration of the DBO (Question 1(a)(i)) is similar to the current UK disclosure requirement (focused on the weighted average maturity of the obligation). This measure is used to understand the profile of the cash flows and complements the disclosure of the expected benefit payments (11F Question 5). The Board expressed general support, but requested that this proposal be discussed by the EBWG, that examples of what is currently required in the UK be provided, and potentially field tested.

The Board voted unanimously to approve the staff's proposal on requiring a "stand-back" requirement (Question 1(a)(ii)) to disclose any additional information necessary to meet the disclosure objectives.

The staff moved on to discuss disaggregation of plan assets and noted that there was a good deal of pushback from respondents about the proposal in the ED. A Board member question the use of "high quality" in the staff's proposal as this notion does not exist in many jurisdictions. After additional discussion, the Board concluded that changing the language in the staff proposal to "credit quality" would work better. The Board discussed the US GAAP requirements in this area. A Board member stated that using a minimum disclosure requirement is not the proper way to reduce the amount of disclosure in this area. The benefits and negative aspects of requiring a minimum list versus a principles-based approach with examples were discussed. Several Board members expressed concern that using something similar to current US GAAP standard (ASC 718-20-50-1(d)(5)(iv)) could produce disclosures that are quite large.

The majority of the Board voted to eliminate the requirement for a minimum list of plan asset categories when disaggregating plan assets. The majority then voted that using a principles-based model with examples (similar to current US GAAP requirement) is the way to proceed. They concluded that nothing would be finalised until they discussed an updated proposal in detail and reviewed sample disclosures and possibly field tested the new proposal.

Presentation: Presenting the components (Agenda Paper 11C)

The staff briefly discussed the information included in agenda paper 11C.

Question 1:

The Board discussed the presentation of the service cost and finance cost components in profit and loss and whether or not to prescribe where in profit and loss these items should be presented. A number of Board members expressed a view that defined benefit-related finance costs represent true finance costs and should be included as a separate cost line in the statement of profit and loss. The staff noted IAS 1 doesn't define finance cost and that entity's have interpreted the definition of finance costs differently. The Board reaffirmed that entities should be allowed to follow the principles of IAS 1 in determining how items should be classified in profit or loss.

The Board voted and the majority approved the staff's proposals to (1) present the service cost and finance cost components in profit and loss and (2) not to specify where in profit and loss they are presented.

Question 2:

The staff moved on to the presentation of the remeasurement component in other comprehensive income. A number of Board members expressed a view that the profit and loss approach (an approach currently allowed under IAS 19) should remain, with entities having the option to choose P&L or OCI treatment. Although elimination of alternatives is preferably in this case it would result in eliminating the alternative that is a better accounting solution. A Board member noted that the OCI approach has been used in UK for over 10 years, that options should not be allowed and that long term gains and losses should not be in profit and loss, as it is not a fair reflection.

The Board concluded not to approve with the staff's proposal to solely use the OCI. The majority voted that the amended standard should include an option for use of either the P&L approach or OCI approach.

Presentation: Other issues (Agenda Paper 11D)

The staff briefly explained the topics for discussion in the agenda item.

Question 1:

The Board discussed the fact that the issue surrounding the recognition of defined benefit plan components in cost of an asset is more of an accounting question, rather than presentation question. The Board members explained that other standards that discuss capitalisation may have deficiencies, but IAS 19 is not the place to correct or make up for such deficiencies. A Board member summarised the fact that the real issue is whether these costs can be capitalised under IAS 2. However, they reiterated that this cost accounting issue should not be addressed by IAS 19 amendments.

The Board voted and the majority approved the staff's recommendation to confirm the proposal in the ED to recognise service cost, finance cost, and remeasurement components in statement of comprehensive income unless another Standard requires or permits their inclusion the cost of an asset.

Question 2:

The Board moved on to the topic of "recycling" OCI items through profit and loss. A Board member confirmed that IAS 19 prohibits recycling in all situations, and the proposal in the ED must be changed to prevent inconsistency. A Board member recommended that the staff proposal to prohibit recycling be approved, with the language being reworded to more closely aligned with IAS 19.

The Board unanimously agreed with the staff's proposal.

Question 3:

The Board then discussed the last topic on agenda paper 11D, treatment of cumulative OCI amounts within equity. A Board member questioned why there was a need to make a special case in IAS 19, and not in other standards. Another member countered by stating that this treatment already exists in IAS 19 and IAS 16. As a result, this proposal achieves consistency in the standards. Some members expressed concern about the specific language used in the staff's proposal, especially the notion of "transfer."

The Board unanimously agreed with the staff's proposal to permit, but not require the transfer of cumulative OCI amount within equity, with language reworded to be consistent with IAS 16.

Classification (Agenda Paper 11H)

Due to time constraints, the Board moved directly to the staff's questions in the agenda paper 11H. The Board unanimously agreed to retain the existing classifications of post-employment and other long-term employment benefits in IAS 19 (Question 1). The staff then briefly discussed the basis for classification of short-term employee benefits and whether the short-term classification should be based on expected settlement or entitlement (Question 2(a)). The staff then discussed the fact that classification should be revisited if the benefit no longer meets the definition of a short-term employee benefit (Question 2(b)).

The Board immediately moved to a vote and unanimously agreed with the staff's proposals.

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